Gadfly

Nasi Goreng Bonds, Anyone?

Indonesia considers selling local-currency debt on global markets.
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Photo by Julia Ewan/The Washington Post/Getty Images

The Chinese made a full meal of offshore dim sum debt, and Indians have started nibbling into masala securities. Now Indonesians are contemplating nasi goreng bonds. Will investors step up to the plate?

Like the other two, this would also be local-currency corporate borrowing, but in global debt markets. Creditors, rather than debtors, will bear the risk of rupiah depreciation. Kartika Wirjoatmodjo, president director of PT Bank Mandiri, the country's largest lender by assets, told me he's exploring the option for PT Jasa Marga Persero, the operator of the Indonesian highway system.  

That a toll-road company could become the first issuer of such debt isn't a surprise. From telecom to ports to subways, infrastructure is the most exciting investment opportunity in Indonesia right now. President Joko Widodo is on a building spree, hoping the private sector will follow suit with its own investment plans, something it has been reluctant to do since the China-fueled commodity boom started going bust three years ago.

But that's not stopping Jokowi, as the president is known, from hopping on a dirt bike and driving down a newly built stretch of an ambitious 4,300-kilometer highway in Papua. When completed, the project would make accessible the mountainous terrain of the archipelago's resource-rich but politically restive easternmost province. 

Such projects abound in Indonesia, but infrastructure guzzles money. The domestic banking system, coming out of a bad-loan scare triggered by the commodities downturn, is too liquidity-constrained to finance it fully.

So innovative financing options are being considered. State-owned Jasa Marga has already planned to raise up to 3 trillion rupiah ($225 million) via a securitization deal in the third quarter. If everything goes well, before the end of the year Mandiri will help it raise an additional $200 million to $300 million by selling rupiah bonds, which would be listed on the London Stock Exchange.

These nasi goreng notes -- or gado-gado bonds, depending on the first issuer's preferred name -- hold the promise of mouth-watering yields in a country that only recently won a long-delayed investment-grade rating from Standard & Poor's. Jasa Marga's 2020 rupiah securities yield 8.7 percent in the local market. That's 2 percentage points higher than what property developer China Evergrande Group's dollar bonds offer, even though the Chinese property developer is on the second rung of junk, according to a Bloomberg risk metric. Jasa Marga's creditworthiness score is several notches higher. 

Exactly 20 years after being bankrupted by the Asian financial crisis, Indonesia Inc.'s plan to sell local-currency bonds to global investors is a noteworthy return of confidence. But more to the point, it's an opportunity for yield-starved investors to pick up a nice return with little credit risk. 

Foreign exchange risk could be another matter. Holding a rupiah investment is not for the fainthearted, given its 32 percent decline against the dollar since the end of 2011.

However, the worst of the rout may be over. The currency has been remarkably stable against the dollar this year, and the near-term outlook is promising. Bloomberg Intelligence is predicting core inflation to remain comfortably within the central bank's 3 percent to 5 percent range in 2017. And in Jakarta, there's very little nervousness about the U.S. Federal Reserve's next moves -- a far cry from the taper scare of 2013.

Nasi goreng may prove to be an acquired taste for institutional investors, but for Indonesian money parked at Singapore's private banks, the lure of juicy home-country yield may be irresistible, especially now that $367 billion of hidden wealth has been declared to the Indonesian authorities and forgiven as part of a highly successful tax amnesty.

The only big risk is that the recent jailing of a former Jakarta governor on blasphemy charges ends up as something more sinister, and puts off the wealthy Indonesian Chinese from bringing back their offshore money into the world's most-populous Muslim nation. Otherwise, this may be just the right time for investors to dig into the local fare. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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